TechWeb

ARM Earnings Rise As PC Market Falls

Apr 23, 2013 (12:04 PM EDT)

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British chip designer ARM on Tuesday reported that its profits jumped 44% to £89.4 million ($136.3 million) during the most recent fiscal quarter. The uptick was fueled largely by the expanding popularity of smartphones and tablets, devices that have eaten into sales of traditional PCs, and to which longtime powers, such as Intel and Microsoft, are struggling to adjust. ARM's strong first-quarter earnings only add to this narrative, and to the notion that a tech industry power shakeup is currently underway.

ARM chips are currently found in many of the most popular personal computing products, including Apple's iOS lineup and Samsung's Galaxy products. They're also finding their way into other connected devices, such as smart TVs. Unlike Intel, which manufactures its own processors, ARM licenses its design to other parties, such as Qualcomm. ARM said that 2.6 billion chips based on its technology shipped during the first quarter, leading to a 33% increase in royalty revenue.

ARM chips have gained prominence in part because they facilitate light, thin form factors and long battery life. Intel's x86 chips, which are found in most computers, offer more processing power but have traditionally involved design compromises. Ultrathin laptops still need a fan to avoid overheating, for example, and generally require battery recharges more often than tablets do. As tablets have come to offer not only mobility but also elegant solutions for the average user's most frequent computing tasks, consumer preference has gradually shifted away from relatively expensive new PCs toward cheap, increasingly capable mobile offerings.

Indeed, given that Intel's revenue dropped 3% in the most recent quarter, ARM's strong performance is a further testament to the PC market's ongoing decline. Traditional computers will play an important role for years to come, but the shift is nonetheless profound. As desktops and laptops cede ground to the competition, companies with big PC investments face a stark mandate: adapt to the times, or lose influence.

[ Take a look at ARM's new server-on-a-chip, set to challenge Intel. Read ARM, AppliedMicro Take On Intel In Data Center. ]

None of the largest players is likely to crash and burn during this transition. But Intel and Microsoft have enjoyed de facto monopolies for years, with some version of Windows installed on around 90% of traditional computers and Intel silicon inside the vast majority of machines. As ARM, Apple, Google, Samsung and others gain market share, it's unclear whether the "Wintel" empire can maintain its clout. Analysts expect that Android, primarily an ARM-based platform, will be the most widely used OS in the world by the end of the decade, and that Windows and iOS will be fighting for second place. This forecast leaves room for all companies involved to reap billions in revenue -- but it also suggests a field with several formidable players, but potentially no industry-crushing giants.

Both Intel and Microsoft are making adjustments, of course. Redmond hopes Windows Blue, the oft-rumored Windows 8 update, will drive adoption among consumers. Intel, meanwhile, is readying not only the Bay Trail class of mobile-oriented Atom chips but also the Haswell family of Core processors. The former set of processors is expected to facilitate fanless, battery-efficient devices that, unlike ARM chips, can run the full Windows 8 OS, rather than the lightweight Windows RT variant. It's expected that the latter group will offer massive improvements in battery life and modest increases in central processing power, an advance that should offer OEMs the flexibility to pursue less-compromised combinations of computing muscle, power consumption and form factor.

Intel's chips are also rumored to be part of a push for inexpensive 7-inch Windows 8 tablets that can take on the iPad Mini, and the company has optimistically forecast a modest increase in revenue over the rest of the year. Intel and Microsoft seem to have the pieces necessary for a rebound, but some analysts remain unconvinced.

Neither ARM's rise nor the threat it poses to traditional powers is confined to consumer devices, though. Businesses have relied for years on x86 chips to keep their servers and data centers running. Companies such as Dell and Hewlett-Packard, though, are already building ARM-based servers, which not only draw less power than traditional models but are also, thanks to the introduction of 64-bit ARM processors, increasingly competitive in terms of computing power. Industry players see these early products as the road to a nimbler, workload-specific class of servers built for tomorrow's dynamic, pervasively connected landscape. The transition away from x86 won't be absolute, and it won't occur overnight. But ARM's expansion from consumer-oriented devices into enterprise-grade products puts pressure on Intel from both sides.

In all likelihood, Microsoft and Intel will continue to be major tech industry influences. But ARM, Samsung, Apple, Qualcomm, Google and others will continue to create new markets and encroach on traditional machines. It remains to be seen how this emerging parity will shape up over the coming years, and if any single company is standing above the fray when the dust settles.

Big iron is under relentless pressure to prove its value in an x86 world. We look at five ways to bring it into the distributed data center. Also in the new, all-digital Mainframes In The Age Of The Cloud special issue of InformationWeek: Five steps to a better wireless LAN. (Free registration required.)